Marc Gunther updates entrepreneur Shai Agassi’s still-quite-plausible plan to bring electric vehicles to the masses:
How does the business work? Essentially, by exploiting what Agassi argues are the cost advantages of electric cars over vehicles powered by gasoline and, yes, you read that right—he says it’s significantly cheaper to operate an electric car than a gas-powered one, particularly with oil priced at more than $110 a barrel. (The economics work with much cheaper oil, too, he says.) The low-cost advantage for electric cars is even greater in Europe, he says, where gas prices are the equivalent of $7 to $9 a gallon.
His claim depends on a lot of assumptions—that a battery with a sufficient range can be produced for $10,000 or less, that he can bring the cost of renewable energy down by committing to buying lots of it, and that the costs of building distributed networks of recharging points and service stations will not spiral out of control.
If he’s right, the cost of powering the electric car will be about 5 cents a mile. As for a gas-powered car, you can do the math, but fuel costs for a car that gets 25 miles to the gallon with gas priced at $3.75 a gallon amount to 15 cents a mile.
Even so, there’s a problem—many people don’t want to pay an extra $10,000 up front for a battery, not knowing how long it will take for them to get their money back in the form of reduced fuel costs. So Agassi isn’t asking for that money up ront. Instead, he intends to sell his customers the cars for much less than they cost, provided that they agree to long-term service plans that will supply them with electricity, battery changes when needed, replacement batteries, etc. He estimates that he could afford to give people a free car if they agree to sign onto a service agreement for six years.